To SMA clients and friends of Vailshire Capital Management:
- I am seeing many signs that the US business cycle may have already bottomed, and is plowing through pessimists on its way from bad to less bad
- The price performance of global assets strongly correlates with the direction of global M2 growth
- Vailshire portfolio changes reflect my increasing belief that we will continue to experience multiple quarters of “surprisingly” strong economic growth and risk asset performance, secondary to ongoing fiscal stimulus and the start of a new business cycle
Current Market Conditions
Resiliency.
Hello from Colorado Springs.
I am writing this month’s update with a heavy heart. My dad passed away this morning after a multiyear battle with Alzheimers. He was an awesome man of God with many talents who loved to help people in need. He worked his way up in life from an extremely difficult childhood to become quite successful in business, while still maintaining a humble and grateful attitude… always deflecting compliments and drawing others in with his winsome personality and playful sense of humor. I already miss him greatly.
In light of this, I will keep the letter shorter than normal.
Risk assets and Bitcoin continue to respond well to the resiliency of the US economy… which is strongly correlated with ongoing large fiscal deficits, courtesy of our US government.
I am seeing many signs that the US business cycle may have already bottomed, and is plowing through pessimists on its way from bad to less bad. This trend may also be occurring internationally, most notably across Europe… and even China.
As economies find their footing, banks should start lending to business owners again. This will expand global M2 money supply and, hopefully, start a new upward trend after approximately three years of choppy, sideways movement. Based on my research, the price performance of global assets, such as megacap technology stocks and bitcoin, strongly correlates with the direction of global M2 growth.
Bitcoin (see chart below), as we have discussed in past updates, continues on a very strong upward trajectory since global M2 bottomed and turned positive in 4Q 2022. I expect this trend to actually strengthen over the coming 20 months or so.
Strategies for Vailshire’s SMAs
We made a few small portfolio changes in the month of February. The changes reflect my increasing belief that we will continue to experience multiple quarters of “surprisingly” strong economic growth and risk asset performance, secondary to ongoing fiscal stimulus and the start of a new business cycle.
I sold our high free cash flow “inflation-busting” ETFs (tickers: COWZ and CALF), as well as Lockheed Martin (LMT).
In their place, I have added three diversified large cap stocks:
The second largest US semiconductor company: Broadcom, Inc. (AVGO)
Warren Buffett’s Berkshire Hathaway Inc. (BRK.B)
Healthcare behemoth: Eli Lilly and Company (LLY)
I have also added some diversity to our fixed income allocation with Annaly Capital Management, Inc. (NLY). Annaly is a huge player in the mortgage backed security space (which I consider to be “backed by” the Federal Reserve), and offers an impressive current yield of approximately 13%.
You have probably noticed that bitcoin has been on a tear since the beginning of the year and approval of the spot bitcoin ETFs. While the related gains within our portfolios have already been substantial, I think that there is much more to come. This is just an educated guess, but I continue to maintain a 4Q 2025 price target for bitcoin of $475,000… which may actually prove to be conservative. (Note that past performance is not indicative of future returns.)
In light of these expectations, I am strongly inclined to allow our winning bitcoin proxy positions to continue to run, rather than traditional methods of “taking profits.” Doing so at this point would be akin to trimming the flowers in the garden, while watering the weeds, as the old saying goes.
We have a good thing going… let’s let it continue to play out.
Our Vailshire SMA portfolios remain allocated towards a 40% equity, 40% sound money, and 20% fixed income structure:
Vailshire’s Aggressive separately managed accounts (SMAs) are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AVGO
- 2% AZO
- 2% BRK.B
- 2% GOOGL
- 2% LLY
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 15% FBTC (spot bitcoin ETF)
- 5% FNV (gold royalty)
- 15% MSTR (bitcoin proxy)
- 2.5% WGMI (bitcoin miner ETF)
- 2.5% cash
FIXED INCOME (20%)
- 5% NLY
- 15% OCSL
Vailshire’s Moderate separately managed accounts (SMAs) are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AVGO
- 2% AZO
- 2% BRK.B
- 2% GOOGL
- 2% LLY
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 10% FBTC (spot bitcoin ETF)
- 10% FNV (gold royalty)
- 10% MSTR (bitcoin proxy)
- 2.5% WGMI (bitcoin miner ETF)
- 7.5% cash
FIXED INCOME (20%)
- 5% NLY
- 15% OCSL
Vailshire’s Conservative separately managed accounts (SMAs) are long-only and are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AVGO
- 2% AZO
- 2% BRK.B
- 2% GOOGL
- 2% LLY
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 10% BLOK (bitcoin proxy ETF)
- 12.5% FNV (gold royalty)
- 7.5% MSTR (bitcoin proxy)
- 10% cash
FIXED INCOME (20%)
- 5% NLY
- 15% OCSL
Vailshire’s Ultra Conservative separately managed accounts (SMAs) are long-only and are allocated as follows (current starter % position size):
EQUITIES (40%)
- 2% AAPL
- 2% ADBE
- 2% AMZN
- 2% AVGO
- 2% AZO
- 2% BRK.B
- 2% GOOGL
- 2% LMT
- 2% MA
- 2% MELI
- 2% MSCI
- 2% MSFT
- 2% NVDA
- 2% NVR
- 2% SHOP
- 2% SQ
- 2% TPL
- 2% TSLA
- 2% TT
- 2% V
SOUND MONEY (40%)
- 10% FBTC (spot bitcoin ETF)
- 15% FNV (gold royalty)
- 2.5% MSTR (bitcoin proxy)
- 12.5% cash
FIXED INCOME (20%)
- 5% NLY
- 15% OCSL
Vailshire’s Bitcoin Proxy separately managed accounts (SMAs) are allocated as follows (current starter % position size):
- 49% FBTC (spot bitcoin ETF)
- 49% MSTR (bitcoin proxy)
- 2% cash
If you are a Vailshire client, feel free to log in to your account(s) at Interactive Brokers and see how your own portfolios are positioned. (It’s a good idea to log in and review your account(s) at least quarterly, just to make sure your settings and demographics are up to date.)
Conclusion
Adding a Healthcare Behemoth to Vailshire Portfolios
Eli Lilly and Company (ticker: LLY) has been a rock solid performer over the years with relatively low volatility, as depicted in the above 5-year performance chart. It is one of three welcome additions to our Vailshire portfolios.
While pullbacks should be expected, and are often painful to endure in the short term, I am increasingly optimistic about the resilient US economy and continued strong performance of risk assets.
I obviously don’t know the future, but my research suggests that most dips in the prices of our portfolio assets should be thought of as opportunities to buy them at better prices. For now, hedging may provide very little benefit and might only hinder our performance over the coming months and quarters.
I’ll be attending my dad’s funeral in the coming days and apologize for the briefer than normal monthly update. I appreciate your prayers.
I would also encourage you to give your friends and family a hug and let them know that you love them. Our most precious commodity, time, here on Earth is limited… so make sure to make the most of it.
I am grateful for each of you.
Living well and investing wisely with you,
Jeff Ross, MD/MBA
